Lessons from 2011 And Ideas For Investing In 2012

The first week of the New Year was marked by plenty of stories that talked about the outlook for the capital markets in 2012.

Investors should ignore most of them. If you need evidence of why you should ignore most of them, look back to the turn of 2011, when nine out of 10 stock market strategists polled by Barron’s predicted US equities gains of 7-17%. Yikes. Glad you didn’t shift all of your money into stocks based on those predictions.

The US stock market ended the year almost exactly flat.

If you are looking for some thoughtful pieces on how to invest the money we hope you will make this year, check out these three pieces:

Business Insider’s Henry Blodget is picking up on a sea change in investing. An increasingly skeptical public is figuring out that the only winning investment strategies available to average Americans are based on a low-cost, diversified portfolio, as he writes in this piece, Finally Some Excellent Investment Advice.

“In other words, if you want to invest intelligently, the first thing you should do is ignore 99.9% of what you hear in the financial media” about how you can be successful at picking stocks and forecasting the market.

Rebalancing Lessons From the Yale Model

Blodget recommends just two things: a diversified portfolio, and regular rebalancing.

We also liked this piece by Felix Salmon about investing in 2012, which ends on this note:

In general the world of financial services is designed to extract as much money from you as possible, by offering as many unnecessary products and bits of advice as it can. Which is why following Blodget’s advice is much easier said than done.

Beware Rising Investment Advisor Fees

And finally, Burton Malkiel, a Princeton economist wrote Where to Put Your Money In 2012, a rundown of the prospects for many different asset classes.

He also takes a rational look at the undercurrent of fear that is beginning to bubble up regarding – what else – a real estate and construction bubble in China.

He ends the piece this way:

Whatever the specific mix of assets in your portfolio at the start of 2012, you would do well to follow one crucial piece of advice. Control the thing you can control—minimize investment costs. That is especially important in a low-return environment. Make low-cost index mutual funds or ETFs the core of your portfolio and ensure that any actively-managed investment funds you purchase are low-expense as well.

We could not agree more. We suggest making 2012 the year to examine costs and fees in your investment portfolios.